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Bond Markets Much Weaker After Surprisingly Strong CPI
Posted to: Micro News
Tuesday, June 17, 2014 8:48 AM

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10yr yields are up a quick 4bps and MBS have erased all of yesterday's gains after this morning's 8:30am data.  In an interesting twist, markets seem to actually be reacting to inflation data--something they haven't done on any obvious occasion since 2009.  Sure, there have been modest, obligatory reactions to inflation headlines, but nothing that stuck, and nothing quite this decisive.  Here's the culprit:

Consumer Price Index

  • May CPI +0.3509 vs +0.2 forecast
  • Core CPI +0.2585 vs +0.2 forecast

To be fair, the bond market reaction is likely less about the old-fashioned connection to inflation, and more about what the report means for Fed rate hike potential in 2015 (because persistently low inflation is one of the big things delaying the rate hike).  Unfortunately, no one seems to be facing the fact that when real earnings are declining, consumer spending will be hard-pressed to play its part.

The Housing Starts data was slightly weaker than expected, and thus not likely contributing to bond market weakness

  • May Housing Starts 1,001k annual rate vs 1,034k forecast
  • Permits 991k vs 1,050k forecast

As a counterpoint to the weaker headline, Single Family Permits were up 3.7 percent while multifamily permits fell 19.5 percent.  This allows the data to be viewed in a somewhat positive light, for those inclined.

Fannie 3.5s moved from positive territory to 6 ticks weaker at 101-30.  10yr yields went from 2.59 to 2.63.

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Mortgage Rates:
  • 30 Yr FRM 3.68%
  • |
  • 15 Yr FRM 2.96%
  • |
  • Jumbo 30 Year Fixed 3.62%
MBS Prices:
  • 30YR FNMA 4.5 108-28 (0-02)
  • |
  • 30YR FNMA 5.0 110-21 (0-00)
  • |
  • 30YR FNMA 5.5 111-28 (0-03)
Recent Housing Data:
  • Mortgage Apps 10.03%
  • |
  • Refinance Index 11.33%
  • |
  • Purchase Index 8.43%